Buying in London with a 10% deposit takes 18 years to become more cost effective than renting

Bournemouth, Huddersfield, Bedford and Swansea also make sense to rent not buy

Aberdeen is the most cost-effective town in Britain for buying property compared to renting. Over a typical seven year period, the average property owner in the Scottish town can expect to be £99,040 better off compared to the equivalent renter, according to research from property website Zoopla.co.uk.

The latest Rent vs. Buy analysis from Zoopla shows that it takes buyers in Aberdeen with a 10% just one year of ownership for buying to become more cost effective than renting. The average property price in Aberdeen is currently £206,060 with average monthly rents at £1,275.

London is currently the most renter-friendly location in Britain. After seven years, a typical London renter would be £82,412 better off than a buyer with a 10% deposit of an equivalent property. It would take 18 years for a London buyer with a 10% deposit to begin to be financially better off compared to the equivalent renter. These calculations are based on a conservative estimate of 4% annual house price growth in the capital.

Bournemouth is the second most renter-friendly town in Britain. With average asking prices of £380,206 and average rents of £1,024 it would take twenty two years for a buyer with a 10% deposit to be better off compared to a renter in an equivalent property. After a seven-year period, a typical renter in Bournemouth would be £30,719 better off than a typical buyer with a 10% deposit.

Lawrence Hall of Zoopla.co.uk said: “Despite taking longer to be better off financially, London remains the holy-grail in terms of property investment. It is much more buyer-friendly outside the capital but with rising average prices and low savings rates, accumulating a deposit has become increasingly difficult. It is important to remember that whilst renters may be better off in the short to medium term in some areas of the country, buyers are making a long-term investment. With most buyers opting for mortgage terms of 25 years, over the long term, buyers are likely to be better off compared to those who choose to rent.”

The Zoopla Rent vs. Buy methodology compares all of the costs associated with buying or renting as well as increases in asset or savings value over time. The analysis forecasts the amount of time it will take for buying to become more cost effective than renting across the largest towns and cities in Britain and compares how much buyers or renters are financially better off after the average tenure of a house.

House prices are likely to continue rising for at least another ten years, George Osborne suggested yesterday when he attacked “Nimbys” for slowing down planning reforms – reported on the front page of The Times by Sam Coates, Philip Aldrick and Francis Elliott. The Chancellor told peers that the shortage of housing was an historic problem as he stressed that the coalition was trying to boost supply as well as providing cheaper home loans to struggling families. “I imagine if we were to assemble again in ten years’ time, we would still be talking about the challenge of making sure that our housing supply keeps up with demand,” he told the House of Lords Economics Affairs Committee. Mr Osborne defended the Help to Buy policy in the face of criticism from Liberal Democrats such as Vince Cable, who suggested last week reducing the maximum home purchase of £600,000.

Personal Finance

While The Sun’s leader is dedicated to energy prices, the Daily Mail looks at miss-selling of superfluous insurance against credit card fraud along with a brief history of miss-selling scandals – from pensions mis-selling scandal, endowment mortgages, and Payment Protection Insurance to interest-rate swap loans and packaged bank accounts. Some 7 million customers of banks such as Barclays, Santander and RBS have been conned into paying up to £1.3billion for policies they don’t need – Lloyds is now implicated as well. The Mail says “though the products mis-sold may have varied, one mystery endures. Why, after this long history of deception and grand larceny, has not a single senior banker been hauled before the courts?…. This fraud won’t cease until the guilty are behind bars.”

Property

Prince Charles has waded into the battle for residents of Somerset according to the front page of The Times, The Guardian and the Daily Mail. The Mirror and the Daily Telegraph are unlikely bedfellows but not only do they also put Charles’ criticism of the official response to the crisis on the front page – they also run editorials on it. Although it was not overtly political, the Daily Telegraph compared the Prince’s visit (he was greeted warmly) to that of Owen Paterson, the Environment Secretary, who was met with placards and jeers. The Telegraph says the visit “reminded us in what low regard quangocrats – such as the mysteriously absent Chris Smith, who runs the Environment Agency – are held.” The Mirror’s Leader piece, on the other hand says the Prince of Wales criticising the disastrously slow response… “is a royal seal of disapproval on David Cameron’s Government”.

Recruitment

The Daily Express says “Britain’s overstretched public services are nearing breaking point” blaming immigration. “One in four babies born in this country have a mother who comes from outside the UK, while Afghan and Somali women are having four or more children, more than twice the national average. They will… need medical care before, during and after the birth… and that’s before the needs of schooling and housing even enter the equation…. This simply has got to stop. The Prime Minister has talked grandiosely about bringing net migration figures into the tens of thousands (and even that would be too much in this overcrowded little isle) and yet it has been revealed that net migration from the EU rose to 106,000 in the year ending June 2013, up from 72,000 the previous year. And that was before immigration controls on people arriving from Eastern Europe were lifted in January. Labour’s stance on immigration was one of the wickedest policies it pursued in its 13 years of office, a course of action foisted on the electorate for utterly cynical reasons which has changed the face of this country for ever.” The Express concludes, “Mr Cameron must act to stem further damage. And fast.”

Four in ten landlords anticipate they will raise rents in the next year, according to a landlord sentiment survey conducted by LSL Property Services plc, which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.

Overall one third of landlords expect they will raise rents above 1% in the next twelve months, with an average estimate of 3.7%, down by 0.9% compared to December 2012. Currently, average rents are rising at an annual rate of 1.5%, according to LSL’s latest Buy-to-Let Index.

Out of those that expect to increase rents, 56% indicated they will do so to cover the cost of inflation. While conversely over half (57%) expect to leave rents unchanged in 2014.

David Newnes, director of LSL Property Services, owners of Your Move and Reeds Rains, comments:“Even with an increase in rental properties available, demand in the private rental sector continues to outstrip supply in many areas, especially in London. In the months ahead, this will enable landlords to push up their rental prices when letting their properties, putting a stop to inflation from eating into their rental income. This is underlined by the fact that covering the cost of inflation is the main reason cited by landlords expecting to increase rents.

“With demand rising, greater emphasis must be on the supply of homes. While the government plans outlined are a welcome move, this is only the start of the long-term solution.”

With current yields at 5.3%, property investment is proving to be a worthwhile alternative to historically low annuity yields and a volatile stock market. Taking into account both capital accumulation and void periods between tenants, total annual returns on an average rental property increased to 8.8% in December, compared to 8.3% in November, reflecting the growth in house prices.

David Newnes, director of LSL Property Services, owners of Reeds Rains and Your Move, comments: “Rising rents are delivering strong yields to investors, making a powerful case for the rental market for those in search of a beneficial, long-term investment.

“However buy-to-let investment is not a license to print money, and it requires the same level of research and planning as any other business investment. The success of the investment depends on the property remaining occupied to deliver ongoing rental income. Before taking the plunge it is important to be aware of factors such as the location of the property, which can determine the level of tenant demand. For instance, those nearest to transport hubs will usually be of the highest demand, especially in larger cities like London.”

FALLING VOID PERIODS

December experienced annual growth in lettings activity, with new tenancies agreed across England and Wales up by 7.7% compared to December 2012. As a result, void periods in private residential property in the UK have fallen, helped by this solid tenant demand. As the UK lettings market powers ahead in 2014, landlords shall continue to benefit from falling void periods, while tenants will face intense competition for the best properties.

David Newnes, concludes: “While void periods are falling, the private rented sector gives tenants flexibility, so as tenants’ circumstances change; there are still occasions when a property might be empty. Of course, it is in every landlord’s business interest to maintain good, long lasting tenancies and avoid voids. At a time when demand far outstrips supply, it is imperative that empty properties are filled quickly, following any necessary maintenance and improvements. Landlords can minimise void periods by talking openly with their tenants about their future plans – in order to prepare for when the property might be empty. Overall there’s an air of optimism surrounding the rental market now that inflation is firmly back on track as wage expectations start to improve. A rise in affluent tenants will help further boost the success of the private rental sector this year.”

Yesterday saw the announcement that inflation fell to the government target level of 2% in the last month, for the first time in four years. Inflation came in 0.1% lower than in November 2013, helped by the falling cost of recreational goods and services. But slower inflation was partially offset by an increase in motor fuel process, according to the ONS. (Guardian p.20 Metro p.46)

Personal Finance

Research from housing charity Shelter reveals tens of thousands of people are taking out payday loans to cover their mortgages and rent, with one in 50 using high interest credit in the past year. The charity warned that in total, one in five have use overdrafts, credit cards or cash borrowed from family and friends in order to pay for housing in the last 12 months. Shelter surveyed homeowners on their financial worries, and also discovered that a quarter of people would feel too ashamed to get help with housing repayments. The charity also revealed a 30% increase in calls to its helpline over the past year. (Metro p.4)

Property

Released in tandem with the ONS inflation statistics yesterday, the latest house price index from the ONS showed the price of the average UK house rose 5.4% to £248,000 in the 12 months to November. In London, the price rise was more than double that, with the capital seeing a year-on-year increase of 11.6%.

The Metro reacted to this news by heralding housing misery for first-time buyers, with the average first time buyer forced to pay £187,000 – or 6% more than a year ago. Peter Rollings of Marsh & Parsons said: “House price growth has washed over every corner of the UK” but in the Daily Telegraph, Richard Sexton of e.surv warned: “We desperately need more construction in order to prevent the bottom of the market being priced out entirely.” (Daily Telegraph B4, Metro p.47, Daily Express p.28, Guardian p.21, The Sun p.38, The Times p.35)

The Independent Editorial lead with a sceptical view of the ONS figures, arguing that expensive housing distorts the UK economy: “House-builders find themselves in the spotlight. Housing completions have been abysmally low for decades. And whatever David Cameron says, it is difficult to see the Government’s Help to Buy mortgage subsidies boosting supply sufficiently to keep house prices anchored. That is dangerous.” It argued that ultimately, even middle-class homeowners could ‘lose out’ from rising prices (Independent p.2)

Recruitment/Education

‘Skinflint’ bosses who fail to pay workers the minimum wage will face penalties of up to £20,000 from next month say the government – a £15,000 increase on current fines. Business Secretary Vince Cable also said that ministers had made it easier to ‘name and shame’ bosses paying under the minimum wage, and that all calls to the free pay and work rights help line would be investigated. (Metro p.47)

UK homeowners predict 7.2% increase in property prices over first half of year

92% of homeowners expecting property prices to rise between now & summer

Londoners most confident with 98% of owners in capital saying prices will rise

Biggest increases in confidence seen in North signalling a broadening recovery

UK homeowners predict house prices will rise 7.2% between now and summer, up from 5.7% just three months ago and from 3.2% this time last year, making it the most upbeat forecast in four years, according to the latest Zoopla Housing Market Sentiment Survey.

The survey of 7,796 UK homeowners by Zoopla found that 92% of homeowners expect house prices in their area to rise over the next six months, up from 65% last year and the highest proportion on record. Only 3% of homeowners predict house prices will fall over the first half of this year, down from 19% at this time one year ago.

The survey further revealed that as homeowner confidence is buoyed, there has also been an increase in those considering buying a property over the next six months in the first half of 2014 – up to 22% from 19% back in September.

Londoners remain the most optimistic about the state of the property market, with 98% expecting a further rise in property values in the capital during the first half of the year and predicting average price growth of 9.6% over this period, above the national average of 7.2%.

In a positive sign for the broadening out of the market recovery, the most significant jump in confidence can be found in the North with Yorkshire and The Humber and the North West where the proportion of owners who believe property prices will increase over the next six months has risen from 84% to 88% in just 3 months. At the other end of the spectrum, homeowners in Wales are the least bullish on house prices currently, with only 85% of homeowners predicting a rise in property prices by June.

Lawrence Hall of Zoopla.co.uk commented: “Across the country, homeowners are starting the New Year far more positive about the health of the property market. Early indicators suggest that we can look forward to a busy first few months to 2014, as current levels of confidence are likely to fuel more transactions. With 2013 characterised by the wave of government initiatives to lure first-time buyers onto the property ladder, 2014 could well be the year we see activity levels increase significantly.”

House prices up 5.2% or £11,920 in 2013 – the highest yearly rise since 2007

Average prices rise £1,489 in December to £240,134, a new record for England & Wales

West Midlands shows second highest regional price growth after London

House Price

Index

Monthly Change %

Annual Change %

£240,134

244.5

0.6

5.2

David Newnes, director of LSL Property Services plc, owner of Your Move and Reeds Rains estate agents, comments:“As we step into 2014, the recovery of the property market shows no sign of slowing down, with buyer demand growing swiftly and competition rising. Average prices reached a new record high in December after a yearly increase of £11, 920, the highest since 2007, along with a monthly increase of £1,489. Without doubt, the market is moving full steam ahead towards widespread recovery. However we’re certainly not in the bubble zone here, with price growth and sales both still some way off their pre-crisis peaks.

“Momentum is sweeping across the board with new record high house prices in areas beyond the capital, ranging from the West Midlands to East Anglia. Attention is moving away from the north south divide and other regions are stepping out of the shadow of London’s more buoyant property market. Now the universal recovery is really taking flight. For the fourth successive month all ten regions in England & Wales witnessed positive price rises over the past twelve months.

“The coming year looks bright for the UK market thanks to the government’s schemes and record low interest rates. Cheaper mortgages, along with an easing of availability of high LTV mortgages and wider product choices to consumers, have made life drastically easier for new buyers looking to get a foot up on the property ladder. The rise in prices is matched by an impressive boost in sales with a 34% increase in sales since December 2012, which is keeping confidence levels up. There are scores of first-time buyers moving towards the market at lightning pace to explore the raft of attractive mortgage deals on offer.

“Record low mortgage rates combined with the boost in activity from first time buyers at the bottom end of the market, has unlocked chains higher up. The rise in activity among second steppers in recent months, with 16% of home movers taking out mortgages compared to a year ago, suggests sales growth will continue at a healthy pace.

“On closer inspection by regions, East Anglia and the North West saw the greatest rise in sales over the past year, over 26%, but London ranked as the third lowest, despite being the area with the largest rise in prices. This shows the underlying issue that many first-time buyers are unable to afford to live in the capital, as properties are moving into a league of their own. This is not helped by growing demand from domestic and overseas buyers left unmatched due to the gross dearth of housing supply in London.

“The departure of the Funding for Lending scheme, and the arrival of the new mortgage market rules in April, might have a slowing effect further into 2014. However the Help to Buy scheme will become even more pivotal in the coming months and the Government’s ability to stimulate housing development will be crucial to address the chronic shortage of housing supply.”

58% of landlords predict tenant demand will grow in the next twelve months

Four in ten landlords reported growth in tenant demand in last six months

Nearly a fifth expect to expand their portfolios in 2014

Three quarters of landlords believe now is a good time to buy or sell rental properties

Prospects are bright for the rental sector in 2014, with growing tenant demand boosting confidence among landlords, and rising prices making properties attractive investment opportunities, according to a landlord sentiment survey conducted by LSL Property Services plc, which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.

In the past six months, 41% of the 2,195 landlords polled reported a rise in tenant demand, with just one in sixteen seeing a fall. Such growth in demand has been the driving force behind the series of rent rises seen during 2013. The majority of landlords (58%) predict demand will increase further in 2014, with just 10% expecting demand to shrink.

Nearly a fifth (18%) of landlords therefore anticipates growing their portfolio of properties over the coming twelve months, while 16% already expanded in 2013.

David Newnes, director of LSL Property Services, comments: “The rise in house prices is evidence of the underlying buoyancy in the property market and the stabilising of rent rises is an indication of the current healthy state of the rental sector. Landlords are therefore in a prime position to benefit from the strong yields on properties and aspiring buy-to-let investors can be encouraged by the climbing tenant demand, as not only does it signify the excellent long-term investment opportunity, but also demonstrates the continued appetite for rental homes.”

“Demand for rented accommodation is strong, exemplified by the fact that the number of lettings, new viewings and applicants are all rising. There are strong foundations for prosperity in the rental sector, fuelled by increased economic optimism and future job creation. Against the backdrop of growing economic stability, more confidence is driving people forward in search of the attractive deals on offer across the buy-to-let mortgage market, which will allow them to benefit from the attractive returns.”

Over three quarters of landlords (77%) believe now is a good time to buy or sell rental properties. Of those who think now is a good time to buy, 71% cited attractive property prices and half highlighted the better capital returns on offer compared to other forms of investment, while 47% pointed to strong tenant demand as a key investment driver.

MORTGAGE FINANCE REMAINS A STUMBLING BLOCK

Despite the stark improvements in the mortgage market recently, just one in six landlords believes the availability of cheap finance is a key reason for why now is a good time to invest – although this is up from one landlord in eleven in December 2012. In fact 35% of landlords say that it is more difficult to raise mortgage finance compared to a year ago, highlighting that for some mortgage challenges remain a deeply embedded issue.

David Newnes concludes:“While the level of buy-to-let lending has been rejuvenated and is now climbing out of the doldrums, this is still short of historic levels. Securing mortgage finance is therefore not just a concern exclusive to first-time buyers, but remains a real and serious challenge for many landlords. Lending to first-time buyers and those without large deposits has itself seen a pick up but still has a long way to go, and the proportion of UK households is only increasing. It is the rental sector that will be continually needed to pick up the slack.

“Filling the chasm between supply and demand is also reliant on the rising number of buy-to-let investors accessing the affordable mortgages required, thus allowing them to further widen the pool of rental accommodation on offer.”